Ericsson beats fourth-quarter forecasts on cost cuts and U.S. demand

STOCKHOLM (Reuters) - Ericsson ERICb.ST beat fourth-quarter sales and profit margin forecasts on Friday, helped by costs cuts and better than expected demand from U.S. mobile operators for fifth-generation (5G) telecoms equipment.

FILE PHOTO: The Ericsson logo is seen at the Ericsson's headquarters in Stockholm, Sweden June 14, 2018. REUTERS/Olof Swahnberg/File Photo

The results topped expectations for the fourth straight quarter as the Swedish company said increased research and development spending was also strengthening its turnaround.

Hit by an industry-wide downturn and heavy losses since 4G network sales peaked in the middle of the decade, Ericsson has been slashing costs and readying for a new cycle of network upgrades, which appears to be kicking in as demand for 5G rises.

Excluding restructuring charges and other costs related to a revamp of its Business Support System (BSS) unit, Ericsson’s operating margin rose to 8.7 percent from 7 percent in the previous quarter, the fourth consecutive quarter of improvement.

The company counts Chinese market leader Huawei [HWT.UL] and Finland's Nokia NOKIA.HE as its main rivals and some analysts think it could benefit from Western suspicions of Huawei, after Washington alleged its gear could be used by Beijing for spying.

However, Chief Financial Officer Carl Mellander told Reuters there had so far been no impact from Huawei’s troubles.

“We have not seen anything in our order books,” he said in a telephone interview, adding he expected growth of 5 percent in 2020 for Ericsson’s main Radio Access Network (RAN) market, up from a projected 2 percent for this year.

“We try to have a strong offering to our customers and stay away from geopolitical speculation.”

The push for 5G helped Ericsson narrow its operating loss to 1.9 billion Swedish crowns ($209 million) in the fourth quarter compared with a 19.3 billion crown loss a year earlier and a 3 billion loss forecast in a Reuters poll of analysts.

Sales rose to 63.8 billion crowns from 57.9 billion a year earlier, above a forecast of 61 billion.

Earlier this month, the company said it would book provisions of 6.1 billion crowns for the fourth quarter after a failed revamp of its loss-making BSS unit, which is part of its Digital Services business and provides real-time charging and billing products.

Ericsson's shares rose 2.3 percent following the results, outperforming a rise of 0.8 percent for the STOXX Europe 600 technology index .SX8P.

The company also proposed a dividend of 1 crown per share - in line with analyst expectations in Reuters poll - and said it posted underlying sales growth in 2018 for the first time in five years.

Reporting by Helena Soderpalm and Olof Swahnberg, Writing by Michael Kahn; Editing by David Goodman and Mark Potter